Long-term Sickness Absence and Holiday Entitlement

Steeles Law Employment Specialist Alison Davies comments on the European Court of Justice (ECJ) ruling that employees on long-term sick leave accrue their holiday entitlement despite not working.

The decision in Stringer and others v HMRC C-520/06and the conjoined case of Schultz-Hoff v Deutsche Rentenversicherung Bund C-350/06 has been highly anticipated andis long overdue.

The decision clarifies the previously confusing position as to whether an employee can accrue their statutory holiday entitlement (under the Working Time Regulations) during a prolonged period of absence from work due to illness.

When the Stringer case was appealed to the House of Lords, guidance was sought from the ECJ on:

·Whether the entitlement to annual leave arises at all where the worker has been on sick leave for the whole of the leave year.

·Whether a worker who has been absent on sick leave for all or part of the leave year in which employment terminates is entitled to payment in lieu of untaken leave; if so, how should that be calculated?

·Whether member states are free to provide that the right to take annual leave is extinguished if not taken by the end of the relevant year, where a worker has been prevented from taking annual leave because of illness.

·Whether a worker on indefinite sick leave must be allowed to give notice to take annual leave, and to take that leave, during a period that would otherwise have been sick leave.

The ECJ ruled (agreeing with most of the Advocate General’s opinion) that:

·Annual leave under Article 7 of the European Working Time Directive continues to accrue during sick leave. This only applies to the 4 week minimum holiday entitlement currently provided by the European Working Time Directive and not the 4.8 weeks provided by the Working Time Regulations in the UK. Nor does the Judgment apply to any additional contractual holiday to which an employee may be entitled under his/her contract of employment.

·When employment terminates, workers must be paid in lieu for the annual leave which they have accrued but not taken due to illness. This is so whether the worker has been on sick leave for all or part of the leave year in question. Pay in lieu should be calculated at the worker’s normal rate of pay.

·It is a matter for national law to determine whether a worker is entitled to take annual leave during a period that would otherwise be sick leave. However, if a worker on sick leave is prevented from taking annual leave, national law must enable that worker to take their holiday at a later date, even after the end of the leave year.As a result, an employee will have the right to carry statutory holiday entitlement over to the following year if the employee is too ill to take it in the year to which the holiday entitlement relates.

This ruling will have an immediate impact on the public sector. Public authorities will have to give the ruling direct effect, which means that they will have to implement the necessary changes, as ruled by the ECJ, immediately.

The private sector will now have to await the decision in the House of Lords where the case will return for a final hearing. The House of Lords will have to determine whether the UK’s Working Time Regulations are compatible with this ruling, if they rule that they are incompatible the Government will be obliged to amend existing legislation.

Comment

The practical and financial implications for employers of this ruling are numerous, particularly in the current state of the UK economy. Employers in the public sector may now have to backdate any holiday entitlement not paid to an employee due to the fact they were on sick leave.

Furthermore, if the House of Lords rules that existing legislation is incompatible, thus requiring the Government to introduce amending legislation, many employers will need to review their policies and contracts to reflect this clarification of the law.

Perhaps most difficult for an employer to accept is the proposition that an employee who is dismissed or resigns during a long period of sick leave will be entitled to a lump sum payment in lieu of holiday accrued but untaken.

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